With around nine to 10 million tonnes of foreign wheat purchased annually, Egypt is the largest wheat importer in the world with a bill of almost $3 billion a year. With most of the state imports going to the politically-sensitive and socially-indispensable subsidised bread programme, this staple is also the most strategic commodity for the country. Boasting expectations of a bumper local harvest this year, the minister of agriculture said earlier this month that the government would cut its imports by 10 per cent as a result. Egypt depends on imports to cover almost 50 per cent of the 18.8 million tonnes of wheat it consumes annually, with around 7.5 million tonnes used to produce subsidised bread. Bassem Ouda, the minister of supply, has put the expected figure for local production for the year ending in June at 9.5 million tonnes. However, a report by the US Department of Agriculture has described the estimate as “non-realistic”, saying that the best scenario would be for the harvest to increase by 2.3 per cent to reach 8.7 million tonnes. The Rome-based Food and Agriculture Organisation (FAO) has echoed these reservations, pointing out that fuel shortages in Egypt could negatively affect the irrigation, collection and transport of the harvest. “I think all the recent talk about an exceptional harvest this year is ungrounded or exaggerated and is just a manoeuvre to mask the government's inability to pay for its imports due to the increased pressure on foreign currency,” a former senior executive in the local branch of commodities trader Cargill said. There has been evidence of a slowdown in imports since the beginning of 2013, with the state buyer, the General Authority for the Supply of Commodities (GASC) only buying 235,000 tonnes of wheat on international markets in the first three months of the year, about a third of what it purchased in the same period a year earlier. Dry bulk vessels over 50,000 deadweight tonnes (dwt), the kind of ships used to carry wheat, have also been arriving in Egyptian ports in sharply reduced numbers, according to a shipping register source quoted by Reuters at the end of February. The US Department of Agriculture expected Egyptian wheat stocks to plunge below one million tonnes by June 30. The government said at the end of March that it still had two million tonnes in reserve, equivalent to about three months' supply, down from an over seven-month coverage last October. Egypt normally buys strategically to ensure that it has wheat stocks equal to at least six months' consumption in its silos. The recent announcements came as the US Department of Agriculture forecast that Egyptian wheat imports would rise to 8.5 million tonnes in the fiscal year beginning in July, from eight million tonnes in the current year and sharply down from the 11.65 million tonnes in 2011/12. The need to buy wheat from abroad to cover the local gap, together with the scarcity of the foreign currency needed, has been a major challenge for Egypt's Islamist government, as it has had to start looking for imports with flexible trading terms. A note by CHS Inc., which markets two billion bushels of grains and oilseeds a year, and quoted by Reuters, stated that Egypt was poised to buy wheat from Russia and the US as it shifts to deals with governments rather than private traders in the search for better payment conditions. Nomani Nomani, former vice president of GASC, said that the reason the US topped the list was because it was the only exporting country that offered to open credit lines for its local suppliers to give Egypt soft terms. According to the London Financial Times, Egypt tapped US government credit guarantees to buy wheat in February. The US department of agriculture had extended $17.7 million in export credit guarantees to Cairo for about 60,000 tons of wheat, the newspaper said. As for Russia, most of its wheat production and marketing facilities are concentrated in public hands, and thus it can accept risks that private traders would shy away from due to the stressed economic conditions in Egypt. However, the visit by President Mohamed Morsi to Russia last week concluded with Moscow announcing that it might increase its imports to Egypt without mentioning any new facilities concerning payments for these imports. The government does not seem to see the gravity of the situation. Ouda told reporters last week that Egypt would finalise import deals, if needed, only with countries that “fit our plans, time schedule and give us the best offers and credit facilities”. “If exporters give us good terms, we will think about it. If not, we don't need to do so,” Ouda said. “We will buy when it suits us, at the price which suits us and in the quantities which suit us.” The source from Cargil commented on Ouda's statement by stressing that purchases take place through tender offers and there is no way that a buying country can dictate terms, “especially when its economic status is a liability in itself,” he said. According to Reuters, Egypt has received a $1.2 billion credit facility from the International Islamic Trade Finance Corporation to help fund purchases of fuel and wheat. The CEO of the Europe operations of CHS, the largest US grain-marketing cooperative, told Bloomberg this week that the currency reserves of Egypt were shrinking and they would probably continue to do so because tourism, previously the largest source of foreign currency, was failing. “The Egyptians' ability to pay and to confirm letters of credit is going to be key and that's a worry for us,” he said. Egypt's foreign reserves have lost 60 per cent of their value since the 25 January Revolution, to reach $13.4 billion last month, equivalent to less than three months of imports. Other than the US, Egypt has held talks with India and Kazakhstan this year on wheat supplies. India's wheat is of lower quality compared to the usual Egyptian purchases. Nomani said that it was still too early to know the true picture of the world's wheat production this year, and estimates of price trends would come out from July. However, he expected these to hover around last year's levels, leading to the possibility of some decline in prices.
